Can’t recover under Sempra Metals? Equity’s not interested (outside of Lord Brandon’s two special classes of case).

18/08/23

The Court of Appeal in Granville v LG Display [2023] EWCA Civ 980 has unanimously rejected an appeal from Mr Adrian Beltrami KC’s decision to strike out a claim for post-insolvency compound interest in the equitable jurisdiction, in circumstances where the insolvent claimant could establish no loss under Sempra Metals [2007] UKHL 34 in respect of that period.

In La Pintada [1985] AC 104, Lord Brandon had identified as the only “two special classes of case” where the Chancery courts had awarded interest as being (i) “where money had been obtained and retained by fraud”, and (ii) “where it had been withheld or misapplied by a trustee or anyone else in a fiduciary position.” The claimants in a follow-on cartel damages claim sought to argue that the deliberate concealment inherent in a secret cartel sufficed to engage the ‘fraud limb’ of that doctrine, in circumstances where no money belonging to the claimants had ever been obtained or retained by the defendants, by fraud or otherwise.

However, the Court of Appeal held that the rationale of the equitable jurisdiction is to “restore to the claimant… the profits… earned from the wrongdoer’s use of the claimant’s property during the period in which it was taken from him.” Its purpose is to allow the claimant to “‘recover’ the very money which had been ‘obtained by fraud and retained by fraud’” for the wrongdoer’s own benefit. It is not to be awarded in “a straightforward action in tort… but depends upon the defendant having in hand a fund obtained from the claimant which he has, or is deemed to have, made use of for his own benefit.”

Having thus defined the scope of Lord Brandon’s ‘fraud limb’, it was not possible to expand the scope of the equitable jurisdiction to award compound interest, in light inter alia of the House of Lords’ decision in Westdeutsche [1996] AC 669. Moreover, there was “no justification for doing so in the circumstances of the present case”, where the claimants “would be entitled to recover compound interest in respect of the post-insolvency period at common law” under Sempra Metals “if they could plead and prove that they had suffered losses during that period”, and could otherwise “seek a discretionary award of simple interest pursuant to section 35A of the Senior Courts Act 1981” for “the mere fact of being kept out” during the post-insolvency period “of whatever damages they can prove that they suffered during the pre-insolvency period.”

As the Court of Appeal concluded, “[o]ur law regards that as a sufficient remedy, with no need for any intervention by equity.”

The Court of Appeal’s judgment can be found here.